Following recent meetings with Apple Chief Financial Officer Peter Oppenheimer, Morgan Stanley analyst Katy Huberty today issued a research note sharing some of her takeaways from those discussions and her views on Apple's future plans.

While she did not disclose any specific information shared by Oppenheimer, Huberty did come away feeling that Apple will be working hard to expand carrier partnerships and distribution for the iPhone to drive growth in Apple's largest segment. She also believes that Apple is working to develop new services to take advantage of the "stickiness" of the Apple ecosystem.

On the topic of the lower-cost iPhone which has been the subject of increasing rumors, Huberty makes the case Apple's experience with the iPad mini and continued strong sales of the iPhone 4 that saw the company experiencing shortages throughout the fourth quarter of 2012 are driving the company's efforts to focus more on cheaper offerings.

Quote:

We also see several signs that a lower priced iPhone makes sense: 1) iPad Mini is expanding Apple's customer base with 50% of purchases in China/Brazil representing new customers to the ecosystem. 2) Chinese consumers show a desire to purchase the latest version of iPhone (instead of discounted older generations). 3) iPhone 4 demand surprised to the upside in the December quarter. Even at a low 40% gross margin and 1/3 cannibalization rate, we see an "iPhone Mini" as incremental to revenue and gross profit dollars.

Huberty goes on to note that she believes Apple has maintained its long-standing approach to product decisions under the leadership of Tim Cook and that the company remains committed to innovation with a strong product pipeline under development. Despite continued investments in that pipeline, Huberty believes that Apple is likely to return more cash to shareholders as its cash holdings continue to grow.

That seems like a fair statement. People would like to have current technology rather than a discounted device from years ago.
For the $450 no contract price of the iPhone 4 Apple could make a better device.

At some point the current target market gets saturated. Much as I love products, I'm only gonna have 1 iPad, 1 iPhone, 2 Macs (home & work) at a time, and (when available) 1 iWatch, upgrading each no more than every 2 years (and probably a lot less often); likewise for most current customers. The $500-$5000 market audience is limited and heading toward saturated. More products in that range will not sell proportionately more.

If is gonna grow more, they have to address & expand fringes. Higher cost devices is a exponentially-decreasing category. That leaves cheaper ... so of course lower-cost iPhones make sense. Make 'em more akin to iPod Nanos with phone capability.

Stickiness works. I bought an iPod Shuffle, and now I've got 4 iDevices in front of me, 4 more at home, and write iOS apps for a living. I have been assimilated. Resistance is futile.

That seems like a fair statement. People would like to have current technology rather than a discounted device from years ago.
For the $450 no contract price of the iPhone 4 Apple could make a better device.

That doesn't make sense...Current technology costs more than dated technology - that's the reason why Apple can afford to sell the iPhone 4 for a lower price in the first place.

I still don't get this lost-cost iPhone solution vs. their current plan of selling old iPhones at a reduced price. It seems like a lot of money would go into designing/building a lost-cost iPhone, plus new machines to build them etc.

__________________Still don't get why I can't save a Word File from an email on my iPhone without some third-party app.

There are lots of people in the USA using iPhones on prepaid providers, and a lot of them pay full price. The iPhone 4 costs around $450. What is wrong with Apple making a new device in that price range? Why should the only device be one that was first released in 2010?

And what does that do to the flagship iPhone? I'm sure Apple will think long and hard about bringing a lower cost iPhone to market and what it might do to the flagship device. I'd be curious to know how much the mini is cannabalizing the full size iPad or if they have any stats on new customers coming into the Apple ecosystem because of the mini (which might offset some of the cannabilzation).

__________________"Terrorism is horrible and must be stopped. All of us must do everything we can do to stop this craziness. These people shouldn't exist. They should be eliminated."— Tim Cook 